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Avoid a Rude Surprise!
Pay Attention to Your IRS Form 990
Most CEOs of health care fund-raising organizations will probably admit that they have not reviewed the IRS Form 990 filed for their organizations. Many CEOs of the providers for which funds are raised likely will share that admission. What's more, auditors of health care fund-raising organizations usually have not contributed to the knowledgeable filing of the form. Too often, completion of the form is delegated to a new staff person of either the fund-raising organization, provider, or auditor, and there is limited review, if any, before filing.
Such laxity in filing IRS 990s is not surprising. Historically, IRS review, if any, has been limited. That's because with the exception of a periodic search for unrelated business income, there is little revenue potential from finding errors. Anyone (outside of the IRS) who is interested in reviewing the forms finds them difficult to access and the effort itself more frustrating than informative.
Times are changing, however! As a result of recent revelations of charitable abuse, there is greater interest in evaluating the appropriateness of tax exemption and in gaining assurance that contributed funds are used conscientiously. Too, there is a new tool for satisfying the quest for information: the Internet. All IRS Forms 990 will soon be aavailable online; most already are.
With improved access to IRS Form 990 information:
And the list goes on...
THE PURPOSES OF IRS FORM 990
It is helpful to understand the purposes of the IRS Form 990. Officially, the form was designed to be the principal, uniform source of essential data on U.S. tax-exempt organizations. Developed collaboratively by the IRS, not-for-profit sector, and state charity officials, it provides information that meets the needs of the public and private sectors and most regulatory and law enforcement agencies, while limiting the burden of the not-for-profit organizations that must file it.
Although it seems possible and appropriate to meet these objectives via a fund-raising organization's annual audited financial statements, these statements have several shortcomings that IRS Form 990 was designed to circumvent.
1) Audit reports of different fund-raising organizations are not uniform. For example, methods of classifying expenses can make the comparison and compilation of data from audit reports difficult. Even though American Institute of Certified Public Accountants' (AICPA) hospital audit guide suggests using natural expense classifications to facilitate comparisons, some not-for-profit hospitals and many fund-raising organizations give special prominence to the functional classification of expenses, which limits comparability.
2) The scope of information provided in audits varies significantly. Some reports seem to be designed with the specific intention of limiting information that might be used by potential watchdogs.
3) There is no standard method for accessing audit reports. Even if there were, the process would likely never be as easy and complete as accessing IRS Form 990 through the Internet.
4) Narratives may not be included with audit reports to explain how a fund-raising organization fulfilled its mission, the types and amount of services it supported, etc., to help readers understand the organization's operations and plans.
Given these shortcomings, audit reports will never be viewed as a substitute for IRS Form 990. Rather, use of the form will quickly and increasingly become the basis for data about all types of tax-exempt organizations, much as Securities and Exchange Commission filings provide information about investor-owned companies.
A BROAD-BASED PROBLEM
There are several reasons why tax-exempt organizations have been lax intheir filing of IRS Form 990:
MOVING FORWARD
On Oct. 14, 1998, at the Urban Institute in Washington, DC, AHP met with other key groups in the not-for-profit sector as part of a collaborative effort to identify and resolve IRS Form 990 filing problems and to achieve improved reporting. These groups included, among others, the United Way, American Red Cross, and National Society of Fund Raising Executives.
AHP has been leading the way on this issue by providing its members with timely and accurate information about IRS Form 990. In addition to covering this issue at its educational offerings, the Association's book Chart of Accounts for Healthcare Fund Raising has a section linking the chart of accounts coding system to line numbers of IRS Form 990.
Nevertheless, achieving improved reporting is dependent on individual fund-raising organizations and their recognition of its importance and benefit.
To underscore the need for action, the AHP Board of Directors will consider at its February 1999 meeting the IRS Form resolution presented on pages 3 and 4 of this insert.
IMPORTANT STEPS
Although all written reports (especially those of a financial nature) are subject to misunderstanding, this can be minimized if reports are prepared carefully and "reviewers" are given assistance in interpreting them. Accordingly, every development director should take the following steps:
1) Assure that appropriately trained staff or experts complete IRS Form 990. Preparation of the form should be a joint effort, with the views of the financial, public/community relations, and fund-raising staffs well represented.
2) Have the provider's CFO and CEO personally review the form so they can promptly and accurately respond to questions from donors and other interested parties.
3) Prepare a reconciliation between the annual audit report and the amounts included in the IRS Form 990, should there be any discrepancies between the two. (Similarly, if reports of fund-raising vresults differ from the audit report or IRS Form 990, reconcile these amounts.)
4) Forward the form to your organization's finance committee, board of directors, or both, for discussion and to serve as a "dress rehearsal" for responding to questions that others may raise.
5) Establish a clear and direct process for fielding inquiries of legislators, reporters, interested citizens, etc., regarding IRS Form 990 (as well as audits and other reports). Be sure staff understand the process and that no caller is passed among uninformed staff before reaching a person qualified to answer questions.
6) Review the organization's IRS Form 990 information, as posted on the Internet, to see exactly what others are seeing. Review forms posted by similar organizations to obtain new ideas for how material can be presented more completely and clearly.
The development director also must be involved in preparing the IRS Form 990 of the provider(s) for which funds are raised. In doing so, the development director should follow steps 1-6, as outlined above.
A FINAL, IMPORTANT NOTE
Technology has brought us to a point where the accuracy, completeness, and timeliness of IRS Form 990 can no longer be a back-burner issue. The ease of accessing this information will create ever-growing demand. Hospitals ignored diagnostic coding data, thinking no one looked at it. Then they got a rude surprise when the sloppy data that had been filed became the benchmark for payment and for evaluating subsequent changes in coding. Do not let this type of history be repeated. Pay attention to the IRS Form 990 filed by your organization today!
This article first appeared as a special insert in the AHP Connect, December 1998/January 1999.
Reprinted with permission from the Association for Healthcare Philanthropy.
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sent via email to QRLevis@aol.com.
www.qual990.org is maintained and hosted by the Urban Institute.